Civil Engineering Professor Panos D. Prevedouros, PhD discusses his opinions on infrastructure issues with emphasis on the City and County of Honolulu.

Monday, February 27, 2012

US Financial Crisis and Globalization

In the coming years US may suffer greatly by the very pattern that it advocated: Globalization. The US is substantially dependent on outside sources to supply industrial products, consumer products, food and energy. So far this has worked well, but the table is about to turn around.

This is the fourth straight year that the US borrowed more than $1 trillion to support its federal government. US budget deficit will top $1.3 trillion, 8.7% of GDP. Only two European countries, Greece and Ireland, have larger budget deficits as a percent of GDP.

If one adds the unfunded liabilities of Social Security and Medicare to the US official national debt, the US debt is $72 trillion, by Obama administration projections. This is more than 480% of GDP. France, the second most insolvent nation in Europe, owes 549% of GDP.

Under more realistic projections, the US official national debt is $137 trillion or 911% of GDP. Counting both official debt and unfunded pension and health care liabilities, the most indebted nation in Europe is Greece, which owes 875% of GDP.

48 of 50 states have annual deficits and large long term debt. Several states have insolvent employee pension and health care trusts. Of course Hawaii is one of them.

Many US cities are in deficit, some are at or near bankruptcy and all face major infrastructure backlogs as well as their own employee retirement shortfalls.

Unlike the huge debt of Japan or France that is owed mostly by their own citizens, US is more like Greece. Most of its debt owned by foreign countries and external lenders.

Why is the US not at the same position as Greece? The reasons are many and they include US' vastly larger economy, vast ability to innovate, vast natural resources compared to most EU countries, vast dependency of many countries on the US consumer to buy the things they make, vast military capability, and having the US dollar as the world's main reserve currency.

This reserve currency is also US' main tool for controlling a quick financial collapse. The devaluation of the dollar would slash the debt owned to foreign interests. At the same time globalization will come back and bite the US consumer since all imports will become 30% more expensive if the greenback is devalued by 30%, resulting in internal hyperinflation and market instability. Messy!

At the same time, this devaluation will cause substantial losses to US' global partners. For example, BMWs will be 30% more expensive in the US and Chryslers will be 30% less expensive in Italy, causing compounded losses in the demand of consumer products in the EU. Messy!

What caused all this mess? Policies and actions focused on the negative side of Capitalism and the negative side of Socialism. Capitalism focused on price and profit, not on sustainable production. Socialism focused on ever increasing and unsupportable entitlements instead of basic and sustainable security.

Brief Information about Panos

Panos D. Prevedouros, Ph.D. is a professor of traffic and transportation engineering at the Department of Civil Engineering, Univ. of Hawaii-Manoa since 1990.
Panos graduated from the Aristotle Univ. of Greece in 1984, and with Masters and PhD degrees in 1990 from Northwestern Univ. (Evanston, IL), a leading academic institution in engineering and transportation.
He chairs the Freeway Simulation Subcommittee of the Transportation Research Board. He was president of the Hawaii Highway Users Alliance from 2006 to 2008.
Panos co-authored a Transportation Engineering textbook and over 100 reports and technical papers. He received the 2005 Van Wagoner Award of the Institute of Transportation Engineers.
He co-organized the 1st International Symposium on Freeway Operations (ISFO) in Athens, Greece, and the 2nd ISFO in Honolulu in June 2009.
Dr. Prevedouros served in the Transit Advisory Task Force in 2006 and in the Technology Selection Expert Panel in 2008 of the City Council of Honolulu.
He run for mayor of Honolulu in the 2008 elections and finished 3rd in the primary elections with 18% of the vote from a field of nine candidates.